NYSE, Deutsche Börse: Winners and Losers

It’s official: The NYSE/Deutsche Börse merger, announced nearly a year ago, has been nixed. Here’s a look at the winners and losers.

WINNERS

BANKS (sort of, see below): Wall Street banks that rank among the exchanges’ biggest customers also number among their fiercest competitors, backing the launch of alternative exchanges like BATS Global Markets, Turquoise and Chi-X Europe that have eaten into the market share of incumbents. The prospect of NYSE and Deutsche Boerse combining their derivatives markets, which command high trading fees and are harder for new entrants to challenge, drew stiff opposition from banks.

JOAQUIN ALMUNIA: The Spanish-born European Commission member, two years into his term, has drawn a firm line on potential mergers in the EU at a time when large-scale deals are running aground on both sides of the Atlantic. The Deutsche Börse-NYSE Euronext combination represents the highest-profile deal his office has blocked.

UNIONS: Labor officials in Germany and France early on voiced reservations about the deal, which they feared would drive layoffs at a time when the financial sector already is under pressure to shed jobs. Late in the process, Deutsche Börse promised to protect German jobs if the deal was consummated.

NASDAQ: The NYSE’s crosstown rival last year sought to break up the deal and acquire NYSE Euronext itself until U.S. antitrust authorities threatened to block that move. Some saw that effort as a desperation play by Nasdaq OMX, which was seen losing influence and sway on the world stage if NYSE Euronext teamed up with Deutsche Börse. Now, that’s not a worry.

CME: The world’s biggest futures exchange in terms of contracts traded will remain so, and avoids facing a competitor with similar heft in derivatives trading plus the star power of the Big Board in stocks. While Deutsche Boerse and NYSE spent the past year toiling on their deal, CME rolled out a new trading system developed with Brazilian exchange partners and strengthened ties to resource-rich regions like the Ukraine.

LOSERS

CEOs: Both NYSE Euronext’s Duncan Niederauer and Deutsche Börse’s Reto Francioni had discussed the potential of a deal for years before getting serious in late 2010, and invested a solid year’s worth of effort and personal credibility selling it to regulators, lawmakers and investors. In New York, Niederauer faced down calls by some of his shareholders to entertain the rival proposal from Nasdaq OMX, or secure better terms from Deutsche Börse. Still, neither is expected to lose his job over this.

BANKS (sort of, see above): Though not excited about the prospect of a big exchange group that held more pricing power over trading, the €3 billion in collateral savings dangled by the exchanges as a product of their merger began to look more and more attractive as the European debt crisis deepened and big banks faced higher capital requirements developed by regulators.

ISSUERS: Companies listing their shares in New York, Paris, Frankfurt or elsewhere in Europe were destined to have an easier time cross-listing securities and accessing new classes of investors, as NYSE Euronext and Deutsche Boerse looked to simplify rules and trim costs.

MIXED

INVESTORS: Deutsche Börse and NYSE Euronext made much of the efficiencies to be wrung from combining their markets, and the improved transparency available to market watchdogs. But even a year after the deal was announced, brokers privately remained skeptical about how much of the savings would find their way to mom-and-pop investors, and commonly traded products like stocks and options already are heavily regulated.

NYSE SHAREHOLDERS: NYSE Euronext’s stock has fallen 33% since the merger became official, and some investors continue to see upside in a standalone strategy. Long-term most agree that merging with Deutsche Börse would have been preferable, but in the short-term the firm is expected to benefit from reduced exposure to the troubled euro zone and sidestepping a potential tax on trading in Germany — though France has also warmed to the idea.

FRANKFURT: The German hub was slated to gain influence over the most-profitable sector of exchange trading, as a combined Deutsche Börse-NYSE Euronext planned to center its futures and options trading there. Still, there was a fear that due to the merger the city eventually would lose out on jobs and tax revenue, and would end up being downgraded to one of NYSE Euronext’s regional branches, a fate that some said befell Paris when NYSE took over Euronext NV.

DEUTSCHE BORSE SHAREHOLDERS: Shares of Deutsche Börse have lost 19% since the deal was announced, underperforming the broader market. Within a minute after the EU prohibition was announced, shares spiked to an intraday high, reflecting some investor confidence that the exchange will also have a plausible stand-alone strategy. Shareholders of Deutsche Börse might get a €2-a-share special dividend promised for a successful deal even if the deal fails due to the strong cash flow, analysts say. In addition, shareholders should benefit from additional share buybacks the exchange could announce, in addition to the €100 million share buyback program announced in October, according to analysts.

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12:06 am May 13, 2012

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3:39 am February 8, 2012

Tommy wrote :

NYSE Euronext is already the largest stock exchange in the world (by market capitalization).. I don't see why it needs to be even bigger

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